1. Technical Field
The present invention relates generally to the processing of financial transactions. More particularly, the present invention relates to systems and methods for electronic deferred check writing.
2. Related Art
Fundamental to the functioning of the economy is the exchange of payment for goods and services. Throughout modem commercial history, payment has typically been rendered with money in the form of currency or cash such as bank notes and coins. Cash continues to be widely used, but it is oftentimes impractical for high-value transactions for a number of widely acknowledged reasons. Because only a small variety of denominations exists, and the most widely available maximum denomination is $100, the weight and bulk of a large amount of cash for such high-value transactions may render it prohibitive due to security and transportation issues. On the other hand, the utility of the rare high denomination currency is limited because of the relative ease with which it may be stolen or lost, as authentication and/or proof of ownership is not required at the time of use.
While being fundamentally based on the value of currency, conventional financial transactions involve the transfer of funds that do not require the physical exchange of cash. One common type of payment is by check, which is a negotiable instrument that instructs a financial institution to pay a specific amount of currency from a designated account of an account holder (or drawer) to a payee that is specified on the check. Typically, the payee deposits the check at his own financial institution that may not necessarily be the same as that of the drawer. The payee's financial institution then initiates a request to the drawer's financial institution for a transfer of the specified amount with the routing number and account number on the check while provisionally crediting the account of the payee. The check is cleared once the funds have been transferred from the payee's financial institution to the drawer's financial institution, with appropriate debits and credits being made to the accounts of the payee and drawer.
Due to the inherent delays of the check clearing process and risk allocations of the same, the payee may have some exposure to loss by accepting checks as payment. That is, the payee will ultimately be responsible for the amount of the check if it fails to clear to the extent that funds are withdrawn from the payee's account in the interim, or to the extent that the payee will be unable to recoup the value of the goods or services rendered in relation to such “bounced” check.
Conventionally, checks are processed over the Automated Clearing House (ACH) network instead of the physical processing thereof by the pertinent financial institutions. In general, an ACH transaction is initiated by a receiver that authorizes an originator to issue an ACH debit or credit to an account. The receiver is understood to be the payor, and the originator is the payee. The originator then issues the ACH debit or credit to an Originating Depository Financial Institution (ODFI), which then sends the ACH debit or credit to the ACH operator to be relayed to a Receiving Depository Financial Institution. The receiver's account and the originator's account are then issued a credit or debit. ACH is used to process a wide variety of transactions including direct deposit of payroll, Social Security benefits, etc., and direct debit of utility bills, mortgages, insurance premiums, rents, etc. In the context of checks, however, the presentation of the check constitutes the receiver's (check writer) authorization. The originator (payee) issues an ACH debit to the receiver in the specified amount to the bank designated by the check, and the transfer of funds proceeds as described above. Notwithstanding the substantial improvements over conventional check processing, ACH transactions may take two to three days to complete, and the risk of loss to the merchant remains the same. Since ACH is operated by the National Automated Clearing House Association (NACHA), the various participating ODFIs and RDFIs are subject to the rules and regulations thereof.
As an improvement over conventional check processing and an alternative to ACH, the United States Congress enacted the Check Clearing for the 21st Century Act, also known as Check 21, for facilitating the electronic processing of checks. Check 21 allows banks to capture an image of the front and back of the check in a process referred to as truncation. The captured check image data, which serves as a legal substitute for a physical copy of the check, is then exchanged between member banks, savings and loans, credit unions, servicers, clearinghouses, and the Federal Reserve banks for payment processing. In addition, due to the widespread availability of scanners and check reading devices, it is possible for merchants to deposit checks remotely without having to be physically delivered to the bank. Because the need for transporting checks is eliminated, efficiency gains and cost reductions can be achieved, and the financial system can remain operational even in emergencies that affect transportation infrastructure.
One problem with all check-related payment modalities is that, as a general matter, the payor account must have sufficient funds before payment is rendered. Under earlier paper check processing, there was a period of two to three days known as float during which the payor account was not debited, so it was possible for a payor to cut a check without sufficient funds at the time of presentment but immediately thereafter depositing funds sufficient to cover the check. Under Check 21, the check can be processed at the time of presentment, though most banks still honor a one-day float period. In any case, except for the limited circumstances noted, the entirety of the funds must be available at or around the time that the payment is made.
This is particularly problematic for large, unexpected, yet absolutely necessary expenses. For example, the widespread unavailability of affordable healthcare has left a substantial number of individuals to rely only upon emergency healthcare. Unfortunately, emergency healthcare is expensive, and oftentimes the very individuals that must resort to it are those least likely to have sufficient funds immediately available to cover the expenses. As another example, the expensive repair or replacement of automobiles may be necessary after involvement in a traffic accident. While insurance is intended to cover such expenses, those without sufficient means may opt for plans with higher deductibles because of an inability to pay higher premiums attendant with lower deductibles. Thus, there may be a significant amount that must be paid out-of-pocket, an amount that may not necessarily be available in full in a checking account. Even routine, expected, or planned expenses often exceed the amount available in a checking account.
Amongst other financial instruments for extending credit, credit cards are available to consumers for paying such large expenses. A financial institution such as a bank typically creates a new credit account and issues the credit card, which is part of a processing network such as VISA, MasterCard, American Express, Discover, and so forth. When the consumer makes a purchase from an approved member merchant, the credit account number and the amount of the purchase, along with other relevant information, are transmitted via the processing network to authorize the transaction. The customer repays the debt, typically on a monthly basis after the end of a billing cycle, while the linked account of the merchant is credited with the amount of the transaction once it is authorized. Credit cards offer flexibility because a balance can be carried that is repaid gradually over time, subject to the payment of interest. Furthermore, merchants are assured payment regardless of a customer's solvency.
As the extension of credit necessarily involves some risk, creditors employ various means to offset that risk and earn profits. These may make credit cards undesirable to one degree or another, and those with higher risk profiles are offered unfavorable terms such as usuriously high interest rates, membership and other fees, universal default provisions, and lower balance limits. For those deemed to be the highest risk, credit cards may simply be unavailable. Risk profiles are most commonly quantified in a credit score calculated from credit reports (from reporting agencies such as Experian, Equifax, and TransUnion) that include, for example, credit usage rate, repayment history, credit application frequency, income, and so forth.
Due to the recent credit crisis and for seemingly other reasons unconfirmed, even those previously deemed to be low credit risks in better economic times are now seeing adverse changes being made to existing credit card agreements. For example, one credit card company has raised interest rates by more than double for a substantial number of customers despite earlier explicit promises to the contrary. Another credit card company has lowered credit limits to the detriment of customers' debt utilization ratios and hence credit scores, which in turn triggered further interest rate increases. For these and numerous other abusive practices, customers are increasingly disfavoring credit cards, and those in less than ideal financial circumstances in particular are in need of different financing options.
One alternative to short-term financing with credit cards is a payment structure in which future dated checks are sequentially processed on the dates specified thereby, with representative examples being disclosed in U.S. Pat. App. Pub. No. 2006/0015428 and U.S. Pat. App. Pub. No. 2006/0015427, both to Friedman. In further detail, Friedman contemplates a check writer presenting one or more future-dated checks to a merchant, followed by a verification of the presenter's check writing history. Furthermore, the balance history of the presenter's account may also be evaluated to determine an appropriate monthly payment amount or total financing amount. If these verifications are acceptable, the merchant assigns all of the checks to a guarantee entity, and immediately receives the total amount for all of the checks presented, minus a service charge. The check guaranty entity then deposits the checks on the dates specified in each of the future-dated checks.
Although purchases can be financed much like with a credit card without the conventional disadvantages associated therewith, the future check financing methods of Friedman are, unfortunately, deficient in a number of significant regards. For example, risk to the guaranty entity may not be appropriately offset in the total amount paid to the merchant in light of the total amount financed and the periodic payment amounts. Furthermore, Friedman does not contemplate alternative risk-sharing balances between the merchant and the guaranty entity that are reflective of and accommodate market trends, nor any implementation specifics therefor. Accordingly, there is a need in the art for an improved electronic deferred check writing system and method.